State of the Industry: Will Megabrands Rule?

By: Briony Davies

Posted: August 15, 2006

From the GCI archives.

As usual, sun care, baby care and the men’s toiletries part of men’s grooming were extremely dynamic.

With global sales topping $253 billion, cosmetics and toiletries (C&T) is on the rise after a lackluster 2004, according to Euromonitor International’s 2005 research. Although growth in Western Europe, the largest market, has almost peaked, recovery from economic uncertainty and the threat of SARS in North America and Asia Pacific respectively brightened the picture for developed regions. When combined with strong performance from the darlings of the industry—Latin America and Eastern Europe—the outlook for C&T is significantly rosier, registering almost 5% growth over 2004. This feature reviews region and sector development over the past year, comments on key trends and speculates as to future direction to ensure that forecast growth of 20% to 2010 is attained.

Mature Markets Mixed

Western Europe continues to take the lion’s share of global C&T sales—although its importance has contracted over the years. The region now accounts for 30% of the world market, with sales valued at $76.4 billion last year, up 2.6% compared with 2004. Taking a closer look at the European big five reveals that France, Spain and Italy saw their growth slow last year—the former two having historically proven fairly resilient to the woes that have befallen other key Western European countries. Germany saw sales decline by just 0.6%. Although this is positive when compared to the drop of -1.4 % last year, the general mood and willingness to buy remains low. With the strength of the discounter trend impacting development, cut-price private labels are bound to fare well.

North America, valued at $54 billion, accounts for 21% of global sales. The 3.3% increase in sales on 2004 is the best growth the region has achieved since 2001. This is clearly due in no small part to the United States, which accounts for 90% of the region’s sales. The U.S. continued to post positive economic results in 2005, with GDP growth of 3.5%. Consumer demand for cosmetics and toiletries, as well as goods and services in general, has stayed strong despite rising energy prices and interest rates.

Asia Pacific Cashes In

Second-place Asia-Pacific scored sales of $63 billion, an increase of 5%. Japan accounts for just over 50% of this region’s sales with growth of 2.9% last year, representing the strongest increase this country has seen for many years. It is China, however, that contributed the most to the region’s growth. Dynamism in China is not new, with European and American multinationals acquiring Chinese companies and brands for many years to enable them to benefit from high forecast growth. China’s status as a priority market was reaffirmed in 2005, with major players, including Estée Lauder (introduced both MAC and Bobbi Brown) and P&G (introduced Max Factor), increasing brand portfolios there.